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Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – February 2, 2017

 

Despite generally positive data the major averages struggled into the final hour with small losses following volatile early trade. Unit labor costs advanced 1.7% in the 4th quarter of 2016, productivity gained 1.3%. For the year labor costs advanced 2.6%, considerably more than the 1.8% average of the last 5-years. Productivity gained an anemic .2% over the same period a sixth consecutive year below 1%. With unit labor costs advancing faster than productivity pressure will remain on corporate profits.

Auto sales missed expectations in January with the annualized rate falling to 17.6 million units, slightly below expectations. Domestic companies were hit particularly hard and with bloated inventories something has to give as autos go stale relatively quickly.

With the Trump administration moving to replace the ACA or Affordable Care Act the devil of course is in the details. The most significant of which is cost control as the healthcare industry has remained notably resistant to competitive pricing models unlike other industries, and no it doesn’t get an exemption from USC Code Section 15 or the Sherman, Clayton and Robinson-Patman acts. Currently healthcare spending is about 19% of GDP or Gross Domestic Product, far higher, sometimes double or triple the cost, than our trading partners and developed nation peers, and we are a much sicker society to boot. The real problem is global economic competitiveness, healthcare is an economic overhead as it adds to the cost of everything we produce and this is why cost control is so important, never mind the financially ruinous unfunded pension benefit liabilities found in Medicare and a host of state and local government pension funds and others, wishful thinking, pie in the sky, assumed +7% or so rates or return aside. If costs are not controlled they will destroy our ability to compete economically and bankrupt the government, Federal, State and Local. Again this is basic High School mathematics and so far I have seen very little if any indication that Trump is serious about addressing these issues and in fact there seems to be a move to exempt the healthcare industry from USC Section 15 legalizing monopolistic and collusive pricing strategies, which are patently illegal. If Trump is serious about Making America Great Again this is a fantastic place to start.

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